What lenders look at
A commercial lender asks two questions. Is the property good security, and can the debt be serviced? Security comes down to the asset type, location, lease and valuation. Servicing is usually tested with an interest cover ratio, which compares net rent (or business profit, if you occupy it) with the interest on the loan at a buffered rate.
- Loan to value ratio (LVR). Most banks lend up to around 65% to 70% on standard commercial property. Some will go higher for strong deals or with extra security.
- Interest cover. Many banks want net income to cover interest around 1.5 times at their assessment rate.
- Lease and tenant. Length of the lease (WALE), the tenant's strength and the rent review terms all move the result.
- Your position. Other debts, other income and how the property will be owned.
Full doc, low doc and lease doc
Full doc loans use your tax returns and financials and usually get the sharpest pricing. Low doc loans use accountant declarations or BAS when your returns are behind. Lease doc loans service from the property's net rent alone, which suits investors with a well-leased building. We wrote a plain guide to lease doc loans with a worked example.
Property types we finance
- Industrial units, warehouses and factories
- Strata and freehold offices
- Shops, strip retail and mixed use
- Medical, dental and allied health suites
- Childcare centres and other specialised assets
- Owner occupied premises for your own business
Buying through a trust, company or SMSF
Most commercial property is bought through a trust or company, and many investors use their super. Structure affects which lenders will look at the deal and what guarantees they want, so we sort it out with your accountant before you sign a contract. See trust and company lending and SMSF commercial property loans.
Before you look at listings, run the numbers. Our sister site Groundwork Commercial has a free calculator that shows the price range you could buy in, with stamp duty for each state.